Federal-Mogul Aftermarket Southern Africa (Pty) Limited v The Competition Commission and The Minister of Trade and Industry

Federal-Mogul Aftermarket Southern Africa (Pty) Limited ("the Appellant") appealed against two decisions of the Competition Tribunal. The Tribunal found that the Appellant had contravened section 5(2) of the Competition Act No. 89 of 1998 by engaging in minimum resale price maintenance. The complaint was filed by Koos Erasmus of Pee Dee Wholesalers (Pty) Ltd ("PD"), who began distributing the Appellant's Ferodo brake products in 1999. Evidence showed that when PD entered the market, a price war erupted with other distributors, particularly Midas Limited. The Appellant met with distributors on 28 May 1999 where wholesalers demanded the Appellant discipline Midas. On 5 October 1999, the Appellant reduced PD's rebate from 47.5% to 40% after accusing Erasmus of participating in the price war. The Appellant claimed this reduction was due to PD's creditworthiness concerns and late payments. However, evidence including a letter from the Appellant's financial director, Mr. Moll, indicated the rebate reduction was to enforce pricing conventions and maintain relationships with other wholesalers. The Tribunal imposed an administrative penalty of R3 million under section 59(3) of the Act.

• Whether the Appellant contravened section 5(2) of the Competition Act by engaging in minimum resale price maintenance
• Whether an 'agreement' is required to establish a contravention of section 5(2) or whether a 'practice' suffices
• Whether section 59 of the Competition Act is unconstitutional for permitting an administrative body (the Tribunal) to impose discretionary penalties
• Whether persons subject to section 59 penalty hearings are 'accused persons' entitled to the protections under section 35(3) of the Constitution
• Whether the Competition Tribunal is an 'ordinary court' within the meaning of section 35(3)(c) of the Constitution
• Whether the administrative penalty of R3 million was appropriate in the circumstances

The appeal was dismissed with costs, including costs of two counsel employed by both the First and Second respondents. The Tribunal's finding of a contravention of section 5(2) and the imposition of an administrative penalty of R3 million were upheld.

The binding legal principles established are: (1) Section 5(2) of the Competition Act prohibits the 'practice' of minimum resale price maintenance without requiring proof of an 'agreement' between supplier and distributors. Evidence showing that a supplier imposed a minimum resale price on distributors who were induced to comply on pain of sanction for non-compliance is sufficient to establish a contravention. (2) A 'practice' for purposes of section 5(2) connotes a form of repetitious or habitual conduct that can be discerned from evidence as being known and recognized to interested parties. (3) Administrative penalties imposed under section 59 of the Competition Act are civil, not criminal in nature, and do not trigger the constitutional protections afforded to accused persons under section 35(3) of the Constitution. (4) A person becomes an 'accused person' for purposes of section 35(3) only when formally charged by the National Prosecuting Authority in criminal proceedings, not when subject to administrative penalty proceedings before the Competition Tribunal. (5) The Competition Tribunal is an independent and impartial tribunal within the meaning of section 34 of the Constitution, though not an 'ordinary court' within the meaning of section 35(3)(c). (6) An appellate court has limited power to interfere with the Tribunal's exercise of discretion in imposing administrative penalties, and may only do so where the Tribunal exercised its discretion capriciously, upon a wrong principle, without bringing unbiased judgment to bear, or without acting for substantial reasons.

The Court made several important obiter observations: (1) Great care should be taken before applying principles borrowed from foreign jurisdictions such as the United States or European competition law regimes. Such jurisprudence reflects shifting public attitudes and scholarly thinking particular to those jurisdictions and their historical contexts. Comparative law should be used in a 'measured and careful' manner, and South Africa's own constitutional and statutory text must be paramount. (2) The 'Colgate doctrine' from US antitrust law, which permits manufacturers to unilaterally announce they will not deal with price cutters, should not be applied in interpreting section 5(2) because it conflicts with the express wording of the section and would undermine the Act's clear prohibition of resale price maintenance. (3) The drafters of the Competition Act regarded resale price maintenance as 'egregiously anti-competitive' and deliberately used terse and clear language in section 5(2) to prohibit it as a practice. (4) The decriminalization of restrictive practices in the Competition Act was a deliberate policy choice to improve enforcement. The distinction between contraventions leading to administrative penalties and those leading to criminal sanctions should not be blurred. (5) The Court expressed sympathy for administrative penalty schemes that balance the interests of enforcement authorities with taxpayers'/business persons' interests in avoiding criminal prosecution stigma, but noted this cannot override clear statutory language and constitutional principles. (6) The Court noted that while foreign jurisprudence on what constitutes a 'criminal charge' (such as from the European Court of Human Rights and Canadian Supreme Court) may be informative, principles congruent with South African law and legal system should be given greater weight.

This case is significant for South African competition law and constitutional law for several reasons: (1) It clarifies that section 5(2) of the Competition Act prohibits minimum resale price maintenance as a 'practice' without requiring proof of a formal 'agreement', distinguishing it from section 5(1) which expressly requires an agreement. (2) It confirms that administrative penalties under section 59 are civil, not criminal in nature, and therefore do not trigger the protections afforded to accused persons under section 35(3) of the Constitution. (3) It establishes that persons become 'accused persons' only when formally charged by the National Prosecuting Authority in criminal proceedings, not when subject to administrative penalty proceedings. (4) It affirms the independence and impartiality of the Competition Tribunal as an administrative body, while recognizing it is not an 'ordinary court'. (5) It provides guidance on the appropriate application of comparative law, emphasizing that foreign jurisprudence must be applied cautiously and must be congruent with South African law and the express wording of legislation. (6) It demonstrates the Court's approach to reviewing the Tribunal's exercise of discretion in imposing administrative penalties, applying the principle that appellate interference is only justified where discretion was exercised capriciously, on a wrong principle, or without unbiased judgment.